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The national registration search contains the names of all individuals and firms who are registered to sell securities in Canada, with the exception of those registered solely with the Ontario Securities Commision (OSC).

Emerging Trends

Cryptocurrencies

What are cryptocurrencies?

Technically speaking, cryptocurrencies are digital coins, tokens or currencies that rely on distributed ledger technology and cryptography to permit the decentralized and secure holding and transfer of the value or interest represented by the coin, token or currency.

In non-technical terms, cryptocurrencies include virtual currencies like Bitcoin, Ether, Litecoin and an extensive variety of other coins and tokens that may perform a function or serve as a form of payment within a particular platform or application or represent an interest in a company, enterprise, commodity or product. Many existing cryptocurrencies can be purchased by members of the public through a variety of trading platforms or in private transactions. New cryptocurrencies are being created constantly and are often offered for sale to members of the public through initial coin or token offerings.

Do Canadian securities laws apply to cryptocurrencies?

Some cryptocurrencies are considered a “security” under Canadian securities laws. Canadian Securities Administrators Staff Notice 46-307 Cryptocurrency Offerings provides guidance as to when a cryptocurrency might be considered a security.

Some cryptocurrencies are not considered a security under Canadian securities laws. Canadian securities laws may still apply if the cryptocurrency is one of the assets in the investment portfolio of an investment fund or if it is the commodity or underlying interest of a futures contract or other derivative.

If the cryptocurrency is not a security or a derivative and is not the underlying interest in an investment fund, trading of that cryptocurrency will not be subject to regulation and oversight by any securities regulatory authority in Canada. In those cases, securities regulators will not be able to take compliance or enforcement action and other protections provided by securities law will not be available.

What should I consider before buying a cryptocurrency?

As with any investment, it’s important to do your own research and be aware of any risks associated with the investment. Despite their growing popularity, cryptocurrencies remain speculative, high-risk propositions for a number of reasons.

Investors should make sure they fully understand how cryptocurrencies work, know the many types of risk involved and understand that they may lose the entire value of their investment.

What should I consider if I’m planning to start a business dealing or advising in cryptocurrencies?

You should determine whether the cryptocurrencies involved would be considered to be a security or a derivative under Canadian securities laws and the laws of any foreign jurisdiction where you intend to do business or have clients. In Canada, if any of the cryptocurrencies are securities or derivatives, registration as a dealer or advisor may be required. Canadian Securities Administrators Staff Notice 46-307 Cryptocurrency Offerings provides some relevant guidance. National Instrument 31-103 Registration Requirement, Exemptions and Ongoing Registrant Obligations and its Companion Policy address the requirements for registration and provide some guidance as to when registration may be required. You should seek the advice of a securities lawyer to assist you in determining the application of any legal requirements, and how you would be able to meet those legal requirements.

What should I consider if I’m planning to start a cryptocurrency trading platform?

You should determine whether any of the cryptocurrencies you intend to make available for trading on the platform would be considered to be a security or a derivative under Canadian securities laws and the laws of any foreign jurisdiction where you intend to do business or have clients. In Canada, if any of the cryptocurrencies are securities or derivatives, recognition as an exchange may be required. Canadian Securities Administrators Staff Notice 46-307 Cryptocurrency Offerings provides some relevant guidance. National Instrument 21-101 Marketplace Operation and its Companion Policy address the requirements for recognition as an exchange and provide some guidance as to when such recognition may be required. You should seek the advice of a securities lawyer to assist you in determining the application of any legal requirements, and how you would be able to meet those legal requirements.

What should I consider if I’m planning an initial coin offering or token offering?

You should determine whether the coin or token you intend to offer would be considered to be a security or a derivative under Canadian securities laws and the laws of any foreign jurisdiction where you intend to offer the coin or token. In Canada, if the coin or token is a security, you will need to consider and comply with the prospectus requirement or rely on a prospectus exemption. Canadian Securities Administrators Staff Notice 46-307 Cryptocurrency Offerings provides some relevant guidance in determining whether or not the coin or token is a security. If it is a security, National Instrument 45-106 Prospectus Exemptions sets out most of the available prospectus exemptions. To date, most ICOs and ITOs appear to be conducted under the “accredited investor” and “offering memorandum” prospectus exemptions in National Instrument 45-106 Prospectus Exemptions. If the coins or tokens are being offered through a website or portal that is in the business of trading or advising in securities, the dealer and/or adviser registration requirements, discussed above, will also apply. You should seek the advice of a securities lawyer to assist you in determining the application of any legal requirements, and how you would be able to meet those legal requirements.